Royal Caribbean Cruises (RCC) expects to maintain its previous earnings guidance for the year of $2.95 to $3.15 per share despite higher fuel costs, expenses related to refurbishment projects, stock options, additional tendering costs in Cozumel and a softening of the Caribbean market. The guidance includes a one-time gain of $0.16 per share from the pod lawsuit settlement. RCC posted earnings per share of$3.26 for 2005.

Q1

RCC reported net income of $119.5 million, or $0.55 per share, on revenues of $1.1 billion for the first quarter ended March 31, 2006, compared to net income of $189.6 million, or $0.64 per share, on revenues of $1.2 billion a year ago. (Before accounting changes were made retroactively, RCC reported net income of $135.3 million or $0.63 per share for the first quarter of 2005).

Revenues were down year-over-year due to lower occupancy and only a slight increase in pricing, according to RCC. Earnings were instead driven by continued strong onboard spending – up 3 percent. In addition, costs were lower than expected.

While revenue and net income were down year-over- year, RCC still came in at the upper end of its own guidance and beat the consensus of $0.32. RCC Chairman and CEO Richard Fain said he was very pleased with the result and that while the two cruise brands are expanding, they are also able to raise prices.

Wave Season

Responding to market concerns. Fain played down the significance of the Wave Season, which this year has produced relatively fewer bookings, and said that while the Wave Season is important, with January and February accounting for about 20 percent of all bookings in the year, it is not as critical as the Christmas season is for retail.

Royal Caribbean International President Adam Goldstein noted that after the three piers in Cozumel were knocked out, the cruise line has had to contend with what he called “disappointingly high” tendering costs.

So far, one of three piers has reopened, but while it usually accommodates two ships, it is so far only able to accommodate one Radiance-class ship at a time,
according to Goldstein.

Commenting on a softer Caribbean market. Fain noted that the past two years’ hurricane seasons “probably have tempered the market, otherwise it could have been even better. But indications so far are that the hurricane season is not a big factor.”

Goldstein added that the weakening did not seem related to either the Western or Eastern Caribbean and did not seem related to hurricane damage. He added that overall the Caribbean was doing well year-over-year, but was not as strong as the company had expected five to six months ago, although the summer season looks solid.

Fain would not comment on individual markets or reports that Alaska may be doing better than Europe, but said instead: “We feel comfortable looking at all the markets in totality. Both Alaska and Europe are doing extremely well.”

For the rest of 2006, Fain said that the outlook was on track, with advance bookings showing solid development and that pricing was up with load factors running
slightly behind last year.

Perhaps seeking to temper expectations for 2006 a little, Fain also said that 2006 comes after two terrific yield improvement years, but he expects yield to be up 3 percent to 4 percent for the year.

Celebrity

According to Fain, Celebrity Cruises has begun to gain traction and its cruises are no longer selling at a discount to Royal Caribbean.

“In 2005, Celebrity overtook Royal Caribbean and is now driving higher yields,” Fain said. “Celebrity is on a trajectory to achieve the higher yields we think it
deserves,” he added.

Dan Hanrahan, president of Celebrity, said that while he is focusing on cost management and product delivery, better ship deployment is a main driver of higher yields. Celebrity is running a longer Einopean season this year and is also starting its South American season earlier, he explained.

Royal Caribbean

Royal Caribbean will dominate industry developments this year with the introduction of the Freedom of the Seas, which Goldstein said is the “biggest cruise event” in 2006. He said that every major travel agency company will be holding meetings on the ship during inaugurations. He also said he was pleased with the bookings. For the next 52 weeks the Freedom will be sailing seven-day Western Caribbean cruises from Miami.

Cautious Forecast?

RCC expects earnings from $0.50 to $0.55 per share for Q2 2006, compared to a consensus of $0.73, and compared to $0.71 last year and $0.58 in 2004.

Based on last year’s performance and other market factors, Q2 2006 should be stronger than RCC’s forecast with the Infinity. Summit and Enchantment of the Seas in service for the full period, while they were out for part of the quarter in 2005 for repairs and stretching, respectively, and with the Freedom of the Seas starting service, offset only by the smaller and less efficient Horizon, which has left the fleet, and the Century being rebuilt.

In addition, spring break and Easter were in April this year, compared to March last year. Thus, the forecast may be an indication of softer market conditions in
general and higher costs.

Q3 and Q4

Fain said that RCC manages on the basis of the year and not the quarter, and that more cost benefits would impact the company in the second half of the year.

Saying it was just coincidental timing. Fain noted: “Expect better cost performance in the second half than the first half.”

For the rest of the year. Fain is also looking at more yield gain to come from the ticket side and net yields up 3 percent to 4 percent, compared to 2005.

Commenting on onboard spending. Fain did not break down the reported revenue between increased passenger spending or renegotiated contracts with concessionaires giving RCC assumingly a bigger slice of the pie. Fain did say, however, that renegotiated contracts were a factor in improved onboard revenue.

Looking to the balance of the year, CFG Louis Leon said that the company is expecting positive earnings opportunities for Q4, but would not say directly whether RCC expects to post net earnings or a net loss for Q4.

In line with industry trends, both Royal Caribbean and Celebrity ships are already available for bookings with itineraries published through spring 2008.

According to Fain, RCC has overcome huge challenges in terms of higher fuel prices and a variety of incidents, and noted it may be more difficult to maintain the
company’s growth course in the future.

The consensus for the 2006 earnings estimate is $3.04 and $3.36 for 2007.

At press time, RCC traded at $42.08 compared to a 52-week low-high of $38.59 to $49.47.

The 12-month average price target is $51.69.

2007 Deployment

Based on the published itineraries. Cruise Industry News estimates that Celebrity will continue to reduce its capacity in the Caribbean, with a 10 percent decrease
over 2006, while Royal Caribbean will increase its capacity, driven primarily by the Freedom class.

In Europe in 2007, Celebrity will boost its capacity by another 19 percent, to an estimated 123,000 passengers from 103,000 in 2006, while Royal Caribbean has announced a 34 percent increase year-over-year with five ships in 2007 compared to four in 2006.

Both brands will maintain their capacities in the Alaska market in 2007.